Dovish hold signals BoE may cut more than projected
Dec 19 (Reuters) -The Bank of England left its key policy rate unchanged at 4.75% as widely expected, though the 6-3 vote split was more dovish than the 8-1 split anticipated with Dave Ramsden and Alan Taylor joining the uber-dovish Swati Dhingra in voting for a 25bp cut.
Naturally GBP is softer following the dovish hold, which also underpins the view that we have hit peak hawkishness in the BoE’s outlook. As has been the case in recent times, markets projecting 50bps of cuts in 2025 has generally marked the floor in pricing and this time looks to be no exception.
With the tighter vote split, this would imply that risks to GBP are likely asymmetrically skewed to the downside on incoming data given that there is greater room for a dovish repricing. Recall that BoE’s view of gradual easing equates to cutting at a quarterly pace, which would mean more cuts than what the rates market currently projects. That said, GBP remains at risk of a dovish repricing.
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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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